House prices haven’t fallen…and in fact may have even gone up

Despite naysayers, post-lockdown house prices in Australia have returned a far less dramatic result than expected. Many were expecting to see large falls in the house price index for April, based off significant falls in other property market indicators like listings, clearance rates, sales and consumer sentiment — and have instead been surprised by capital city values rising 0.2% over the month.

The result was still the weakest month-on-month movement since June 2019 and less than half the 0.7% rate of growth in March. Annual growth remained stable at 9.7%. The Melbourne property market returned the weakest result, falling into negative territory over the month at -0.3%. Hobart was the only other market to post a decline.

Corelogic head of research Tim Lawless said the trend for positive growth started to weaken in mid-March as social distancing policies were implemented, placing considerable strain on consumer sentiment.

Home sales have been less resilient, recording a conspicuous 40% decline in the number of transactions in April to reach a 29-year low. The drop in property sales is most acute in Melbourne, with sales down 85% over the past eight weeks while Sydney experienced a 79% decline.

CBA economist Gareth Aird said that he expects price data to fall into line with other property market indicators in coming months: “We suspect that there are some timing issues around the Corelogic data and actual price action,” Aird said. “Any lags should catch up in due course.”

Corelogic house price index: April

Month %Quarter %Annual %Median value
Combined Capitals0.22.19.7$647,414
Combined regional0.51.83.2$396,070

The Commonwealth Bank has forecast a 10% decline in house prices over the next six months.

The headline-grabbing house price fall forecasts have ranged from the bearish 30-plus per cent, to the more favourable 5 to 10 per cent over the remainder of the year.

However, the slightly overall increase in the housing price index tells us two things. Firstly, that the market will take a while to catch up with predictions, and secondly, that the markets are ready to bounce back as soon as possible once the self-isolation restrictions are lifted. The former is a matter of how the markets work — property notoriously follows behind consumer trends and sediment by a few months, so we should expect to see the biggest falls in the coming month or so. The latter is indicative of how the markets were standing pre-COVID-19: many markets in Australia were on the upswing, preparing to go into the ‘boom’ part of their cycles. Many economists are predicting that once we have hit the worst of this period, the boom will continue. Some are even going so far as to say that we should expect another 10-20% of capital gains by the time the cycle completes.

While we cannot speculate fully on how much the economy will recover, we do agree that the markets will recover, and quite well.

Written: 1 June 2020

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